EP grapples with trust fund

February 3, 2013

EAST PALESTINE - A fund established in the village 38 years ago from the sale of the electric plant could be out of the picture in the future.

Village Solicitor Shirley Smith said this week that in researching the fund she discovered it was not a "trust fund" but a special fund.

The difference is significant because legally money from a trust fund cannot be used for any other purpose than what the fund is designated for.

"It was designated as a special fund, however, it was limited to only be used for purposes of capital improvements," she said.

Trust fund money cannot be put toward general fund money, and over the years the village has borrowed money from the fund and done just that.

Smith said in some cases money that went to the general fund was designated for capital improvement purposes, but in other cases it is unclear what the money was used for.

"If it was spent on something other than capital improvement" I don't know, she said.

The village began borrowing money from the fund years ago when not enough money was available for things in the water, sewer, street and general funds.

There is currently only $30,806 remaining in the fund that started out with $3.08 million as a result of the 1974 sale to Ohio Edison. Until the sale, the village had operated its own electricity generating facility. Although the plant on the west end of town was phased out, the building remained under the ownership of the village. It is currently owned by Councilman Don Elzer.

The fund has diminished over the years as a result of past and present councils approving ordinances to borrow from the fund with the stipulation that any money borrowed would be paid back.

But at some point the village didn't have the money available to pay back the money, and legislation was introduced that would suspend payments to the fund for five years.

The legislation was passed in 2002 and 2008, with the latter suspending payments through 2012.

Council was presented in January with legislation that would suspend payback another five years, which prompted the recent discussion.

"The large question was, how do we handle this? Do we have to pay it back?" Smith said. "I can say with certainty, short of repealing the legislation, you need to pay it back."

She told council they could repeal the previous legislation if they choose but in the meantime she and Finance Director Traci Thompson are looking over where money went that is unaccounted for, and what the obligations are to have that money paid back.

Councilman Fran Figley pointed out that until 2001, where the money went and what it was used for was heavily documented.

He said that in 2001, $200,000, $350,000 and $70,000 were taken from the fund and designated as a "capital improvement" or "general fund" expense, but exactly what the money was used for was not documented.

Smith was quick to point out the village has never failed an audit and although some of the borrowed money was not documented specifically it doesn't mean it was used improperly.

Figley then moved to table the legislation until more information was available about the fund, and whether payback could even be done away with in the first place.

(Thompson, who was not present for the meeting, had said at the last meeting the village cannot afford to pay the fund back at this point.)

Figley's motion passed, but not without an extensive discussion about the benefits and disadvantages of enforcing the payback. He argued the fund is an asset to the village because it functions as a type of savings account.

"There is some advantage to having the money. I imagine 80 percent of the people in here have a savings account of some kind, small or large. I'm for making some kind of payment toward it. Since my short time on council I have seen where we have had to borrow from it. I think we owe it to the citizens to pay it back," he said.

Elzer countered the village should rely on a savings account that isn't so "restrictive" and suggested creating a new fund for savings.

Council member Ellen Beagle sided with Figley and was also against doing away with the fund, but didn't view it as a savings account.

"I understand it's not a savings account, but it is a legally owed debt, and that debt is not owed only to the city of East Palestine, or the town or village, it's owed to all of us. I find it unethical, even if we can legally obliterate that debt, I find it unethical. That is as unethical of a move as I can imagine this council making ... I cannot vote for that," she said.

Those who were for absolving the payback, which included Elzer and Councilman Alan Cohen, have previously said the village shouldn't be required to pay the money back since it was borrowing from itself.

But Beagle argued that borrowing from yourself is "sound business principal" and therefore beneficial for the village.

"You cannot get the interest money paid to you that you are going to pay out so you borrow money from yourself. It is a generally accepted accounting principal. The IRS honors it. You just can't go, 'OK, I owe that to me, I don't owe it anymore.' It doesn't pass me ethically and I won't vote for that," she said.

Elzer responded that her argument the money belonged to everyone was true, but it also meant the debt belonged to everyone as well.

Cohen then said the money borrowed was used to benefit the village.

"I'm not saying that we shouldn't pay it back, but it's not like somebody stole the money ... We can't make a decision or not until we get information from Shirley," he said.

Council agreed to discuss the matter again at the next regular meeting.